Exercising Options: Unlocking Ownership in Your Company

Exercising stock options means purchasing the shares of company stock you have the option to buy at a pre-set price (your exercise or strike price). Think of it like a coupon for company stock—you have the right, but not the obligation, to “buy” those shares at the price stated on the coupon. This allows you to buy shares at potentially below-market value if the company has grown.

Why would I exercise my options?

• To actually own shares: Options themselves aren’t shares—they’re the right to buy shares. Exercising converts that right into actual ownership. This is a necessary step before selling shares on a platform like Earlyasset.
• Potential for profit: If the company’s value increases, the market price of the shares will likely be higher than your exercise price, providing the potential for profit when you eventually sell.
• Greater control: Owning shares typically gives you more say in the company’s direction than simply holding options. (Though this varies depending on share class.)

When should I exercise my options?

Determining the optimal time to exercise your options is a complex, personal decision influenced by several factors:

• Vesting Schedule: You can only exercise vested options. Learn more about Vesting Schedules
• Exercise Price/Strike Price: The lower your exercise price, the more appealing it might be to exercise, even if the current market value isn’t dramatically higher. Learn more about Exercise Price/Strike Price
• Company Performance and Outlook: A company performing well increases the likelihood its share value will appreciate, making exercising more attractive. However, remember that past performance is not indicative of future results.
• Tax Implications: Exercising options can trigger tax consequences. Understanding these is crucial. Learn more about taxes related to Incentive Stock Options (ISOs) vs. Non-Qualified Stock Options (NSOs) Learn more about the Alternative Minimum Tax (AMT)
• Personal Financial Situation: Exercising requires funds to purchase the shares. Consider your cash flow and investment strategy. Learn about Cashless Exercise/Net Exercise for strategies to minimize out-of-pocket expenses
• Expiration Date: Options expire. Don’t miss the deadline! Learn more about Grant Date vs. Expiration Date

How do I exercise my options?

Your company will have a specific process for exercising options. Typically, this involves contacting your company’s stock plan administrator or using an online platform designated by your company.

What happens after I exercise?

After you exercise your options and pay the exercise price, you officially own the shares. You can then hold these shares, or, subject to any restrictions (e.g., lock-up periods) explore selling them on the secondary market via platforms like Earlyasset. Learn more about Selling Your Shares with Earlyasset

So here’s what we covered:

• What it means to exercise stock options
• Reasons for and against exercising
• Key factors to consider when deciding to exercise
• The process of exercising
• What happens after you exercise

It’s common to have lots of questions about exercising options. It’s a complicated, but important topic. Earlyasset is here to help—feel free to reach out if you have questions. We’re here to help you navigate this process with confidence.